The Great Rotation Promotion

The title implies a bear writer about to write bearish things. I get it. I
guess I am a bear writer now because I can no longer be a bull writer. That
is because my b/s detector is calibrated to its most sensitive setting and
usually begins sounding early. The b/s detector went off early last May and
the bullish analysis had to endure through a very volatile summer. Now it is
the same, in reverse.

But SPX 1550+ is our plan, not that of most come-lately bulls. We staked it
out months ago and it appears to be coming about. Further, it is coming about
with signs - like the 'boots on the ground' evidence of the semiconductor equipment
upturn, creeping 'jobs' stabilization and generally good corporate results
during earnings season. That is the reality.

What is also a reality is a Federal Reserve doing its best to backstop and
promote all of this, as normal inflation indicators have not yet registered.
They literally have free license to print money and try to promote bubbles.
The "Great Rotation" story is being manufactured in the media and it is the
perfect accompaniment to the current sentiment-fueled rally toward very important
targets. It also raises an interesting question.

If low interest rates have been a key to what lame economic recovery is
in play now, what would the rising interest rates implied by the "Great Rotation" out
of bonds and into stocks bring about?

We'll follow up that question with more questions; with a defection by the
public would the Fed then begin to buy bonds of all types and durations? Shorter-term
Treasuries, investment grade corporates, junk and municiples to go along with
its stated operation in MBS and long-term Treasuries?

Basically that is a Fed out of control and on steroids, bloating itself up
until one day it just bursts. Perhaps the tin foil hat brigade will find the
answer in the $Trillions in buying power of US retirement accounts. There is
chatter about the government overseeing these accounts for the benefit of
its citizens.

More likely, bond revulsion to the benefit of stocks would serve to expedite
the end of the now 4-year-old bull market. The story seems to fit nicely with
the big picture technicals and the idea that a bull market will use the weirdest
stories to suck in the final holdouts prior to termination.

This is a cyclical bull market, so it does not need to flame out with the
grand idiocy of the dot.com-style promotions ('who needs revenue?') of the
secular bull ended 2000. It is a cyclical bull that has already run for 20%
of the time of its secular predecessor, and a silly story about a great rotation
from bonds to stocks goes well with the dynamics currently in play. It is more
in line with the garden variety insanity that the inflation-fueled cyclical
bull (2003-2007) promoted: 'house prices will always go up'.

The kinds of people who chase late-stage bull markets need paint-by-numbers
direction. After all, to these people there are only "stocks and bonds" per
the most basic, fundamental and ongoing financial industry promotion.

The chart above shows an epic setup in the making. The first part of the big
play will be to either preserve capital or for those willing to risk the short
side, capitalize on the next down cycle. The best opportunity however, would
probably be to buy assets for pennies on the dollar at the next cycle bottom.

Meanwhile, it appears bull heroes are being made as the trend-following media
celebrate the brave contrarians that called the bull when everyone was bearish
in 2009. Where was the media last summer? The end of the world is what it was
promoting then.

Bring on SPX 1550+ and the potential for a profound transition sometime in
mid-late 2013 or early 2014.

[Note the word 'potential'. Nobody has a crystal ball, but technical
targets, bull cycle duration and the current sentiment backdrop argue strongly
for a defensive stance on balance when viewing the entirety of 2013. Meanwhile, this
post measures SPX targets of 1562 and 1589 for euphoric bulls to chew on.]

Disclaimer:biiwii.com does not recommend that any trading or investment positions
be taken based on views expressed on this site. If you speculate or invest
it is suggested that you consult a financial advisor qualified in your area
of interest.